As the government mulls ways to shore up sagging growth, Finance Minister Arun Jaitley today said reviving private investments and strengthening the banking sector are the biggest challenges in this process.
“The reality is that there are two major challenges. One with regard to encouraging private sector investment and second with regard to improving the capacity of our banking system to support growth,” Jaitley said, addressing IBA’s Annual General Meeting here.
The Indian economy has the resilience and entrepreneurial vision, he said while exuding confidence that there is a will in the government to carry out reforms. It has initiated sector-specific measures in the face of global slowdown in the past, he added.
Jaitley said however that global prospects are reviving and pointed out to these two issues as the potential impediments in the process.
For the last six quarters, India’s GDP growth has been falling and it came down to 5.7 per cent in the June quarter. Private investments are low and bankers often complain about there being no fresh demand for greenfield projects. The system credit growth is struggling to revive and continues to be in mid single digits.
Deteriorating asset quality and the pressure on capital stemming from the high NPAs, coupled with migration to newer capital guidelines, is the biggest stumbling block for banking system.
The government is mulling a stimulus package, which some reports peg at over Rs 40,000 crore, to revive the economy. “As a dynamic and progressive society, we have to look for the best solutions and make sure that we are able to resolve these issues,” Jaitley said.
According to some experts, continuing slowdown is likely to increase pressure for additional stimulus through a higher fiscal deficit, accommodative policy stance and a competitive rupee, which unfortunately has limited scope.